Government's fiscal reform package wins approval

Mirek Topolanek, photo: CTK

The lower house of Parliament on Tuesday passed a package of fiscal, welfare and healthcare reforms aimed at cutting the country's steep budget deficit and preparing it for euro-zone entry. It was a major victory for the ruling centre-right coalition which has only a slim majority in the lower house.

Mirek Topolanek, photo: CTK
It was touch and go for Prime Minister Mirek Topolanek who had linked his cabinet's future to the fiscal reform package. Seven rebels in the governing coalition pushed for last-minute concessions - and just hours ahead of the vote agreement was reached with all but one of them. The fiscal reform package was approved by a narrow majority of 101 votes in the 200-seat lower house.

"This is the first step not just towards healing the country's public finances but in addressing all the problem-areas of life in the Czech Republic," the Prime Minister said minutes after the crucial vote. The reform package which significantly cuts income taxes while rising indirect taxes is expected to make the Czech Republic a more attractive environment both for wage earners and corporations.

Photo: CTK
However trade unions, who demonstrated against the reforms outside Parliament on Tuesday fear that the VAT hikes and medical fees which are part of the package will far outweigh any advantages to be gained by a lower income tax. The opposition Social Democrats and Communists could not prevent the reforms' approval - mainly thanks to two former Social Democrat deputies who - though unaffiliated - supported the government's proposal. After the vote opposition leader Jiri Paroubek promised to reverse what he could when he came to power:

Jiri Paroubek, photo: CTK
"We shall change whatever can be changed, wherever possible - the Social Democrats are convinced that these reforms are bad reforms."

The opposition has also stated its intention to file a complaint against the reforms with the Constitutional Court on the grounds that the introduction of medical fees violates the Constitution. However that depends on the interpretation of the Constitution and legal experts say the complaint may be rejected. As for the fiscal reform package, it is expected to pass through the Senate without a hitch since the Civic Democrats have a comfortable majority in upper chamber. And President Vaclav Klaus has already said he will sign the bill into law. If all goes according to plan most of the changes will take affect on January 1st of 2008.